China: PMIs suggest moderation in momentum in Q1

The latest PMI figures suggest that growth momentum may have moderated somewhat in January. We expect a pick-up in Chinese growth in Q2.


China’s official manufacturing purchasing manager index (PMI) came in at 51.3 in January, down slightly from December (51.6). The Markit PMI (also known as the Caixin PMI) stayed at 51.5, the same as in the previous month. Meanwhile, the official non-manufacturing PMI rose slightly in January. The official composite index, which is a weighted average of the manufacturing and non-manufacturing indices, remained unchanged.

These mixed PMI figures suggest that growth momentum in the Chinese economy, particularly in the manufacturing sector, may have moderated somewhat in the early weeks of 2018, although the service sectors have been fairly stable.

The new export orders sub-index declined significantly in January, to 49.5, after having risen strongly (to 51.9) in December. In our view, this drop can largely be explained by seasonal factors such as Christmas orders.

Domestic demand is showing continued signs of slowdown in Q1 as the growth in fixed-asset investment declines and the government strengthens the enforcement of environmental standards.

Looking ahead, we expect Chinese growth to decline moderately in 2018 after a strong 2017. Q1 could be soft due to the special environment-related policy measures, but as the impact of these policies fades, growth momentum may start to pick up again in Q2. Overall, we still expect the Chinese economy to remain resilient in 2018 on buoyant global demand and solid domestic consumption. We recently revised up our Chinese GDP forecast for 2018 to 6.5% from 6.3%. The latest PMI release does not change our view.

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